I heard a story last week from a friend of mine who just flew home from vacation. She had a great conversation with her seat mate on the plane and shared with me this story.
The fellow sitting next to her talked about how his 93 year old mother had recently sold an investment property in order to liquidate money to fund home health care. She told her son she wanted to always be at home. She was fairly well off and owned both her home and the investment property free and clear. When she sold the investment property she got SOCKED with capital gains tax.
My friend told her seatmate that she thought a reverse mortgage might have been something that would have worked even better for his mother and they had some conversation about it. I guess he had had a negative perception of reverse mortgages and I don’t know if their financial or estate planner even talked with them about it as an option.
I was thinking that if mom was 93, she could have gotten a pretty large credit line from a reverse that would have worked great for funding in home health care. Her home was worth more than the current lending limit of $625,500.00 and at 93 she would have qualified for over $430,000 in a line of credit. She wouldn’t have had to sell the investment property and her children would have inherited it free and clear.
The loan proceeds from the reverse mortgage would have been tax free as it is not considered income, but what about the investment property - would the heirs be facing a tax on that if they inherit it? Would it be more than the capital gains tax the elder has to pay now? My friend on the plane was certain that this son and his mother would have been better served if the elder had obtained the reverse mortgage to fund her home health care and passed on the investment property free and clear. An answers out there from an estate tax pro or financial planner?
Deborah Nance
Your Local Southern California Reverse Mortgage Professional
